Highlights

• In an announcement to local bourse, Westports stated that container tari ff revision has been approved by Ministry of Transport via letter of approval dated 5th August 2015, which was addressed to Port Klang Authority.

• The tari ff hike will impact cargoes at gateway, transhipment, shifting and re-stow, storage charge and handling charge for heavy lift or uncontainerized cargo.

• Tentatively, implementation of the new tari ff will take effect in two phases. First phase will be implemented on 1st September 2015, which involves an average 15% hike on key container tariff item. Second phase will be another ~15% hike to be implemented 1st September 2018.

Comments

• We are positive on the news as the much anticipated tari ff hike on key container items at Port Klang has finally arrive after about 14 years.

• We gathered that Westports is able to implement the new tariff hike for its gateway container effective 1st Sept 2015. However, we assume one month notice to be given to its customers and hence we think earliest it will be ef fective is on 1st Oct 2015.

• As for transhipment throughput, the tariff hike will take place gradually because they are governed by contracts which already state the agreed tariff. We understand that new tari ff will be applied to short term contracts (2-3 years) upon its expiry. However for long-term contracts (5 years and beyond), there is an exclusion clause which allows Westports to renegotiate the terms of contracts with its customers. Hence, to be conservative, we assume 15% hike on transhipment will be spread over period of five years.

• Note that transhipment made up ~ 70% of tot al Westports’ throughput while the remaining ~30% is gateway. Also note that gateway tari ff commands ~60% premium over transhipment.

Risks

• Container trade volatility.
• Stiff completion from regional ports.

Forecasts

• We factored in our new assumption on tari ff hike into our financial model which then lifts our FY15-17 EPS by 2-8%. This in turn leads to higher TP of RM5.35 (previously RM5.03)

Rating

BUY ; TP: RM5.35

Positives

• Expansion plan to drive earnings growth; and extension of ITA for CT8 and CT9.

Negatives

• Consolidation of shipping liners; and development of 3rd port in Port Klang.

Valuation

• We continue to like Westports’ business model of long-term sustainable, recurring and yet growing income. Hence we maintain our BUY call with higher TP of RM5.35 based on DCFE valuation.

Source: Hong Leong Investment Bank Research - 7 Aug 2015